Real estate is one of the best long-term investments you can invest in. If you are just starting, however, there is a lot to learn. While there is significant potential to make money, if not done properly, you can end up losing big.
Unlike investing in stocks, investing directly in real estate involves research, due diligence, and understanding legal and financial requirements. That is why it pays to do your homework. Here are 5 SMART tips to help you get started!
Location, Location, Location
Just like any business, you need to take the location into account when looking at a real estate investment. The neighborhood you want to look for is where crime is low, the schools good, and in a growing area. This makes real estate more desirable.
Once you find the right location, look for the worst or cheapest house in that area. You can invest some money to fix it up and have a higher chance of the value increasing. If you purchase the most expensive property in the neighborhood, it will make it more difficult for the value to appreciate.
Research Market Trends
Keep your eye on the market by watching the news and staying updated on the real estate trends. A common real estate investment mistake is to buy or sell a house at the wrong time. If your investment is for the long-term, then it won’t be as big an impact if it is a short-term investment you are looking to flip.
Check the trends to see if real estate in the market is either a seller’s or buyer’s market. A seller’s market means there are limited properties available and lots of people willing to buy. The seller basically dictates the market and can raise prices. The opposite is true for a buyer’s market, where there are not enough buyers. As such, sellers are willing to lower the prices to secure a sale.
Understand How to Spot the ‘right’ Property
When it comes to real estate investments, the right property can differ depending on your needs. If you want to buy and sell a property quickly, then you need to find a suitable one. This will be a house that’s affordable – but with room for improvements. As a result, you can buy it, pay to fix it up, then flip it for a profit.
By contrast, the right property for a buy-to-let investment is different. Here, your focus is on the features and location of the home. Ideally, it should be ready for people to live in right away. You don’t want to spend money doing it up as you don’t intend to sell it.
Building property can be a very smart way to get involved in real estate. Invest your money in some land, find a custom home builder, then get to work. The advantage of building is that it gives you control. You can create a custom home that’s incredibly appealing.
As a result, it lets you put it on the market for a very competitive price. What’s more, building a home may be cheaper than buying one. So, when you do list yours on the market, it will automatically be for a higher price than what you spent building it.
Use the “1% Rule”
If you’re planning on buying a property that you plan on renting out, make sure you check out the market rents and use the “1% Rule.” This rule can help you decide whether or not the property is worth the price you’ll pay for it.
The 1% Rule states that an income-producing property needs to produce 1% of the price you pay for it every month. For example, if a property you are looking at is $250,000, then the monthly rental income should be 250,000 x 1% = $2,500. If you can’t get this in rental income, then look at other properties.
When done correctly, real estate investments always pay off. Give yourself the best chance of success by taking the smart approach!